The Rating Outlook is Stable.
Debt payments are secured by a pledge of the gross receipts of the obligated group.
KEY RATING DRIVERS
PROFITABILITY DECLINE: The system reported a loss from operations through the third quarter of the current fiscal year ended
SOLID LIQUIDITY MAINTAINED: The decline in operating results is partially offset by HRHS's very good liquidity metrics with 203 days cash on hand (DCOH), 12.9x cushion ratio, and 146% cash to debt, all slightly improved over the prior year and stronger than the 'BBB' rating category medians.
REVENUE DIVERSIFICATION: Fitch views the system's diversified service lines, which include acute care, long-term care, and robust home care presence as a credit strength, providing an attractive platform for population based health care delivery and a potential partnership with a larger organization.
ELEVATED DEBT BURDEN: The system's debt burden is elevated with maximum annual debt service (MADS) equal to 4.1% of revenues, compared to the category median of 3.5%. HRHS's coverage of MADS by EBITDA was 2.6x in fiscal 2013 and 2.1x through the nine-month interim period ended
CONSISTENT PERFORMANCE AT RATING LEVEL: Fitch expects HRHS to maintain performance in line with its audited performance and an increase operating losses with a negative impact on EBITDA debt service coverage, or deterioration of the solid liquidity position, may lead to downward rating pressure.
HRHS's obligated group consists of
The affirmation of the 'BBB-' rating and the Stable Outlook is based on HRHS's solid liquidity position and revenue diversification, which serves to offset the weak operating performance. Fitch's additional concerns include the competitive northeast
HRHS's operating margins have been thin for the last four years - typically under 1%; fiscal 2013 (year-end
A major contributor to the profitability erosion is the increased expense stemming from physician recruitment and the investment in the integrated clinical network
ELEVATED DEBT BURDEN
The system generated coverage of MADS by EBITDA of 2.6x in fiscal 2013 and 2.1x through the nine-month 2014 interim period. The
SOLID LIQUIDITY MAINTAINED
Partially offsetting Fitch's concern with the slim operating results and elevated debt burden is HRHS's ability to maintain and even slightly grow liquidity. The
HRHS covenants to provide audited annual financial statements within 120 days of each fiscal year end and quarterly disclosure within 60 days of each fiscal quarter end. Quarterly disclosure consists of management discussion, balance sheet, income statement, cash flow statement, and utilization statistics.
Additional information is available at 'www.fitchratings.com'.
--'Revenue-Supported Rating Criteria' (
--'Nonprofit Hospitals and Health Systems Rating Criteria'(
U.S. Nonprofit Hospitals and Health Systems Rating Criteria
Revenue-Supported Rating Criteria
Source: Fitch Ratings
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